ACHIEVING FAIRNESS IN TRADING BETWEEN SUPERMARKETS AND THEIR AGRIFOOD SUPPLY CHAINS

Briefing Paper for the UK Food Group, September 2005

by Anne Tallontire and Bill Vorley

Summary

Fairness and equity in trading relations between supermarkets and their supply chains is a hot topic, both in the development debate (smallholder access to markets) and the domestic farming debate (crisis in family farming). 

But the topic is largely absent from current approaches to Corporate Social Responsibility (CSR).  ‘Fair trade', with its origins in the trade justice movement, is largely treated in the marketplace as a high-end niche, in the form of an extra cost to consumers for Fairtrade labelled produce.  And ‘ethical trade', with more recent roots in CSR, is treated as a cost to suppliers in the form of imposed standards and codes.  'Ethical' codes make little mention of producer price despite huge imbalances of market power between producers and retailers.  In fact, the current trading environment is characterised by both a proliferation of standards for ethics and sustainability and the abuse of market power by powerful buyers, leading to a classic cost-price squeeze for producers. 

The marketplace is about to get quite confusing, with a proliferation of ‘sustainable', ‘ethical' and ‘responsible' claims with varying degrees of rigour. 

In order to bring fairness and justice into mainstream trading relationships,  innovative retailers can start to bridge this arbitrary and artificial gap between ‘fair' and ‘ethical' trade.  We propose the development of a set of guidelines for retailers that wish to incorporate fairness and justice into their trading relations, learning from the Fairtrade experience, to expand rather than constrain opportunities for small and family scale producers.  By this corporate standard (rather than a brand or mark), customers could be assured that their purchases across the board have not contributed to the exploitation of producers and misuse of market power.  The potential opportunities and risks associated with introducing such guidelines are highlighted in this paper.

But the room for manoeuvre for innovative companies is severely constrained by the current structure and governance of agrifood markets, which rewards ‘economies of scale' (or rather squeezing suppliers) while failing to provide a public policy environment which would curtail the abuse of market power.  We point to a series of public policies-especially competition policy-which would be required to underpin fairness and equity in trading practices of mainstream companies.

See attached. Also available for download at www.ukfg.org.uk